Careedge Ratings global arm need to address Oligopoly in global ratings: Sebi

MUMBAI: SEBI and IFSC regulator International Financial Services Centres Authority (IFSCA) have said that an Indian global rating agency is required as there is an oligopoly among global rating agencies and India needs a global presence in rating. IFSCA chief K. Rajaraman and SEBI ED Pramod Rao were speaking at the launch of CareEdge's global ratings division in GIFT City, which aims to rival rating agencies in the West.

CareEdge is currently the only large Indian rating agency. "The credit rating business is highly concentrated and oligopolistic, and more so in the case of sovereign ratings, where there is a duopoly. There is also the element of groupthink which dominates their outlooks and assessments. And hence, while appearing to be fierce competitors with differentiated methodologies, the outputs are largely the same or vastly similar. CRISIL, ICRA, and India Ratings are controlled by S&P, Moody's, and Fitch, respectively," said Pramod Rao, ED, SEBI, speaking at the launch of CareEdge's global ratings.

"In theory, Moody's rating should diverge from Fitch and S&P on the same issue according to the variations in the loss severity, as the expected loss can be approximated by the product of the default probability and the expected loss severity. However, in practice, there is little divergence," said Rao. He added that with the launch of CareEdge, the global south will have a new service provider with whom to engage.

Speaking at the event, K. Rajaraman, Chairman, International Financial Services Centres Authority, emphasized that as India moves towards the vision of a developed and prosperous country by 2047, it is crucial to establish a global presence with respect to ratings and research, as currently, global credit ratings are dominated by a few agencies. He added that the regulatory framework for CRAs in GIFT IFSC, as specified by the IFSCA, ensures that they are held to high standards of governance and operational efficiency.

CareEdge Ratings Chairman Najib Shah stated that there is a "deep miscarriage of justice for African nations" in that the ratings they have been subject to are unfair. He cited a 2023 UNDP report which suggested that this unfair rating situation led to higher borrowing costs of almost $74.5 billion for these African countries.

"While I am not suggesting bias, there is no denying the fact that there is a troubling burden of perception which appears to colour ratings. This is where CareEdge steps in," said Shah.

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